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DONOR INFORMATION RESOURCE CENTRE Helping to Improve Donor Effectiveness in Microfinance www.microfinancegateway.org

Microfinance and HIV/AIDS

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December 4, 2003

Overview

• How does HIV/AIDS affect

poor households?

• How can financial services

best be used in communities grappling with HIV/AIDS?

• How can financial institutions

be effective in affected areas?

• What can donors do to

support an effective microfinance response to the HIV/AIDS crisis?

People with HIV/AIDS

Source: UNAIDS, AIDS Epidemic Update 2002.

• As of the end of 2002, an estimated 42 million adults and

children were living with HIV or AIDS

• Over 95 percent of them live in less developed countries

Sub-Saharan Africa 71% South and Southeast Asia 14% Latin America 4% East Asia and the Pacific 3% Eastern Europe/Central Asia 3% Western Europe 1% North America 2% North Africa and Middle East 1% Caribbean 1% Australia and New Zealand <1%

A vicious cycle for poor people

Poverty deepens Ability to protect against further economic losses decreases

How Does AIDS Affect Poor Households?

Vulnerability to disease increases

Why does income decline in households where persons suffer from HIV/AIDS?

Lost income of a sick adult Lost economic productivity of healthy adults who become caretakers Dramatic increases in household expenses

How do households handle economic stress ?

• Liquidate savings
• Reduce food

consumption

• Borrow from formal

and informal sources

• Cut back on non-

essential expenses

• Sell assets, further

reducing the ability to earn income in future

Financial services alone cannot solve the repercussions of HIV/AIDS BUT Access to a broad range

• f financial services (especially savings) can

help households build a safety net to deal with the impact of the disease

• Help clients maintain or

increase income

• Provide clients with an
• pportunity to build savings

which are secure, easy to liquidate quickly, and retain value

• Reduce clients’ vulnerability to

loss

• Enable clients to avoid

irreversible coping strategies that destroy future income earning (i.e., selling productive assets such as land or farming equipment)

How can financial services help mitigate the economic impact of HIV/AIDS?

Who can use financial services in regions affected by HIV/AIDS?

Individuals who are HIV-positive, but still productive Productive family members of HIV- positive individuals Surviving spouses, children, or parents Households unaffected by HIV/AIDS

Burial insurance Emergency loans Education trusts for minors Flexible savings Loan insurance Acceptance of younger and older clients

What products and policies are responsive to their needs?

How Can Financial Institutions Be Effective in Heavily-Affected HIV/AIDS Areas?

Portfolio Management Risk Management Linkage Approach

MFIs can provide basic messages on HIV/AIDS prevention and care MFIs can refer clients to specialized providers of health and insurance services

Linkage Approach

EXAMPLE: FINCA/Uganda negotiated an insurance plan for its clients with Microcare, a health-plan provider that offers coverage of acute HIV/AIDS episodes

MFIs can operate successfully in communities affected by AIDS by maintaining a diverse portfolio Explicitly targeting persons living with AIDS can:

– impair an MFI’s ability to achieve sustainability and scale – overburden clients with debt they cannot manage

Portfolio Diversification

Financial institutions should prepare by :

• Planning in advance how to respond to clients

in crisis

• Planning for reduced savings rates
• Monitoring for higher dropout, absentee, and

(possibly) default rates

• Strengthening management information

systems

• Adjusting loan-loss provisioning

Risk Management

What can donors do to support an effective microfinance response to the HIV/AIDS crisis?

Avoid explicit targeting Support financial institutions that are focused and specialized Encourage innovative linkages and strategic partnerships Facilitate the exchange and dissemination

• f lessons

learned

• Avoid pushing MFIs to

launch operations in markets specifically to respond to the HIV/AIDS crisis

• Help MFIs already working

in heavily-affected regions to manage the risks

• Also support organizations

able to provide grants instead of financial services

Avoid Explicit Targeting

• Better understand the

prevalence of HIV/AIDS and its impact on clients and MFIs

• Improve the ability of MFIs to

respond to the crisis (e.g., workshops on operational planning)

• Reduce the social stigma of

HIV/AIDS

• Develop guidelines on non-

discriminatory HIV/AIDS workplace policies

Facilitate the Exchange and Dissemination

• f Lessons

Learned

• Only sustainable, efficient

MFIs can provide communities affected by HIV/AIDS with permanent access to financial services

• Most integrated programs

have poor results for clients

Support Financial Institutions That Are Focused and Specialized

Encourage Linkages and Strategic Alliances

Strategic alliances can provide

• pportunities for:
• MFIs and HIV/AIDS programs to

cross-refer eligible clients

• MFIs to invite HIV/AIDS NGOs to

provide information on prevention, care, and support topics

• HIV/AIDS groups to gain insights

from microfinance staff and clients on income-earning topics

• MFIs to reduce research costs for

lending innovations by using information gained from HIV/AIDS projects on clients’ economic coping strategies

Donor Good Practice Example

• In Zimbabwe, USAID funded

training for staff from 15 MFIs on assessing the impact of HIV/AIDS

• n clients, staff, product demand,

and financial results

• The training included a strategic

planning exercise

• MFIs requested subsequent training
• n how to adapt financial products

to HIV/AIDS settings

• After the training, seed funding to

pilot test new or modified products was granted

Summary

• Households affected by HIV/AIDS can use microfinance

services as one way to protect their economic resources

• Launching a financial intervention specifically targeted at

persons with AIDS is not generally appropriate, since financial services depend on the on-going ability of clients to earn income

• MFIs that operate in hard-hit regions can benefit by

planning for the institutional risk posed by HIV/AIDS

• Donors can help by encouraging innovative linkages and

strategic partnerships between strong MFIs and

• rganizations providing HIV/AIDS-related services

Where to Get More Information

• Jill Donahue, Kamau Kabbucho, and Sylvia Osinde, HIV/AIDS—

Responding to a Silent Crisis (Nairobi, Kenya: MicroSave-Africa, 2001).

• Joan Parker, MBP Microfinance and HIV/AIDS Discussion Paper

(Washington, DC: USAID/MBP, 2000).

• Joan Parker, The MBP Reader on Microfinance and HIV/AIDS: First

Steps in Speaking Out (Washington, DC: USAID/MBP, 2000).

• Joan Parker, Ira Singh, and Kelly Hattel, The Role of Microfinance in

the Fight Against HIV/AIDS (Development Alternatives, Inc., report to the Joint United Nations Programme on HIV/AIDS, Washington, D.C., 2000).

Contact: Nataša Goronja 1818 H St., NW, Washington, DC 20433 Tel: 202-473-9594 Fax: 202-522-3744 E-mail: cgap@worldbank.org Web: www.cgap.org